Changing German Market Depresses the Pharma Industry

Germany has shifted from a market where the pharmaceutical industry could enjoy considerable pricing freedom to a sensitive market influenced by cost-containment policies. However, pressure is being placed upon the country to change its pricing policy once again.

Germany's pharmaceutical market is currently valued at around €38 billion, making it the largest pharmaceutical market in Europe (1). Historically, the country has been attractive for launching new medicines because companies were largely free to set their own prices. In addition, Germany possesses comprehensive pharmaceutical coverage and a high level of public funding. In general, most pharmaceuticals are eligible for reimbursement through Statutory Health Insurance, which covers about 90% of the German population.

In 2008, German pharmaceutical prices were described by the Organisation of Economic Cooperation and Development as the highest among its 30 member countries (OECD now has 34 member countries), for both patented and generic drugs (2). Not surprisingly, in 2008, the number of products possessing a marketing authorisation in Germany far exceeded that of any other European market. Physician freedom in prescribing has helped drive pharmaceutical sales as well and even when measures were introduced to set volume targets for physicians, they had limited impact. In particular, it was difficult to hold physicians to account because the collection of data to convincingly prove overspending was problematic and because physicians would claim exceptional circumstances for their choice of prescribing (2). Similarly, in 2002, measures were introduced to allow pharmacists to substitute a cheaper drug whenever possible, but physicians still retained the right to oppose the decision.

Despite market successes in Germany, the pharmaceutical industry expressed concerns that there were unnecessary delays in the approval of medicines. In 2003, a task force representing both industry and the government was convened to look at enhancing innovation in the German pharmaceutical market by examining steps to accelerate the national marketing authorisation procedure. Following recommendations in 2007, structural changes were made to the Federal Institute for Pharmaceuticals and Medical products (Bundesinstitut für Arzneimittel and Medizinprodukte, BfArM) to make it more independent and efficient in its decision-making. Some of the outcomes were, however, unfavourable for the industry, such as proposals for increased private funding of BfArM's activities, mainly coming from application fees related to the applicants' turnover (2). Pharmaceutical companies complained about the measures, but the changes appear to be representative of the steady shift in government decisions that do not necessarily align with industry viewpoints.

Change in the pricing environment

The key sign that times were about to get tougher for pharmaceutical companies in Germany came with the introduction of a new healthcare bill known as AMNOG (Arzneimittelmarkt-Neuordnungsgesetz) in 2010. AMNOG formally signalled the end to the free pricing era in Germany, much to the displeasure of the pharmaceutical industry, which has complained that the reforms will lead to €2 billion in lost revenue per year (3).

In contrast to the previous freepricing environment, companies are now required to demonstrate the benefits of their drugs early in the development process. Following an independent appraisal, these benefits are factored into the permitted price. AMNOG reforms required these data for all new reimbursable drugs and combination therapies launched after 1 January 2011. Although pharmaceutical companies have constantly opposed the measures, they are now firmly established.

Under the new system, companies must compile a cost–benefit dossier comprising a variety of information about their product that must be submitted within three months of product launch. The Federal Joint Committee (G–BA), a group featuring representatives from the medical profession, insurance companies and hospitals, examines the evidence for the product to decide whether any added value will be recognised (3). The G–BA may decide that another body known as IQWiG (Institut für Qualität und Wirtschaftlichkeit im Gesundheitswesen) should conduct the cost–benefit analysis. The resulting outcomes for a product can be major added benefit, significant added benefit, unquantifiable additional benefit, or no added benefit. Although the evolving German system may seem to bear some resemblance to the work of the National Institute for Health and Clinical Excellence (NICE) in England and Wales, IQWiG has refuted such comparisons. Unlike NICE, IQWiG does not use the quality-adjusted life year (QALY) measure in its assessments.